MIKE VENABLES: Hello and welcome back to the marketplace insight podcast series, where we are discussing the current state of the market for construction. I am Mike Venables, the head of GB Construction Broking, and I'm delighted to be joined today by Jim Dunlap, the North American Construction Broking Leader. Hi Jim, thanks for joining.
JIM DUNLAP: Hey Mike, thanks very much for having me. It's always good to connect.
MIKE VENABLES: Thanks, Jim. Jim from a London market perspective for 2025, we are currently experiencing a transition towards a softer market, generating more favorable terms driven by a competitive dynamics, insurers increasingly willing to offer broader coverage at lower premiums to attract and retain clients, characterized by increased competition and improved follow capacity. Jim, what are you encountering from the U.S. markets?
JIM DUNLAP: You know, Mike, on a macro level, here in the United States, there are several variables that are driving both our economy. That's putting some pressure on the insurance marketplace in and of itself. Most notably, many of our clients are dealing with labor shortages, which ultimately may be exacerbated by the changing immigration policy here in the U.S. And then additionally, we're beginning to show some real signs of concerns with tariffs on building materials. And I'm specifically talking about steel and aluminum and lumber.
And the increased cost of these materials in and of themselves is driving the overall cost of construction up. And the cost of construction in and of itself is a very common rating basis for insurance premiums. So as the cost of the building or the cost of the project goes up, insurance companies are taking this as an opportunity to really recoup or drive some additional premium collection. And frankly, we need to be able to keep up with these rising costs, but would really is showing as an impact on overall insurance pricing here in the U.S.
Now, when I flow that down from a macro discussion into what are some of the experiences we're having in the insurance marketplace, there's a couple reasonable signs specifically in casualty. Generally speaking, the market here in the United States is stable and capacity is available. However, we continue to see rate increases in some of our more challenging lines of coverage. Specifically, the auto market continues to show signs of challenge, with carriers pushing much higher deductibles on large fleets.
This is most prevalent in some challenging jurisdictions such as Florida, Texas, Georgia, California, where we're seeing auto rates rise significantly higher than some other less litigious geographies. Then additionally in the casualty space, the umbrella and the access market also continues to present some pretty significant challenges in the marketplace. While the capacity is available, carriers are very carefully monitoring the deployment of limits. In many cases, the carriers are willing to write the risk. however, they will only be willing to deploy much shorter limits.
Seemingly, the days of the $25 million tranche of excess capacity are gone, unless we have to use a greater number of carriers to build out these excess towers. And essentially this is adding a transactional cost to the overall placement of the insurance. So while the capacity is available, we need to utilize many more carriers, and that in and of itself tends to be driving the overall prices up.
So Mike, that's a little bit about our macro conditions, as well as some of the casualty marketplace experiences we're having here in the U.S. So what are you seeing more globally?
MIKE VENABLES: Yeah, thanks Jim. One of the common traits the construction industry is experiencing is projects exceeding their original build period. London insurers continue to support mid-term projects, providing competitive premiums and comprehensive coverage where other carriers are unable to. The unique structure of the London market with the subscription model and global reach, allows it to handle large and complex risks effectively. Making it an attractive option for mid-term projects that require robust and reliable insurance solutions.
Looking into the future for 2025, the international construction insurance market is expected to continue to improve, driven by increased insurers capacity, which in turn is generating competition and a growth in appetite for well-managed risks.
Key drivers include the increasing capacity being offered by leading insurers, increased willingness to underwrite risks for clients with strong loss mitigation strategies, new markets entering the construction space, generating greater competition to better price and terms. And I'll pass back to you, Jim. Are you foreseeing Netcat pricing and capacity to shift during 2025?
JIM DUNLAP: Mike, that's a really good question. And here's where we're actually seeing a little bit of some-- what I would, say a little bit of good news. In the United States, the builder's risk market, frankly, is showing some signs of overall rate improvement, with Nat-Cat capacity being stable or even in some cases, just slightly increases in rate. It isn't to the point where I would say that it's widely affordable, and I say that in quotations, but the capacity and the pricing will continue to be determined by the individual geography of the project itself.
As you know, Mike, there are significant differences in let's say, climate and exposure to Nat-Cat in certain areas of the United States. So in heavily prone zones, we're going to continue to see some capacity crunches and some increases in rate. But overall, that marketplace seems to be stabilizing slightly. And then moving forward with the recent wildfires here in California, we have to at least mention that, for this discussion, we haven't seen a noticeable impact of the results of the wildfire in the commercial insurance marketplace.
Seemingly, this has been seen mostly as a private or a homeowners insurance component. But that being said as the rebuild starts in California, we expect to see some significant scrutiny on the project. The cost of the project, as I mentioned earlier, will ultimately drive up some premiums. The availability of frame builder's risk construction will be a challenge, however, that said we have not seen a specific impact of the wildfires on rating as of yet. However, we do anticipate that moving forward.
And then one final piece about the U.S. market and again, the good news department, the workers' compensation market here in the United States continues to be competitive, stable. Insurance companies are looking to right that predictable premium. And that's really helping to offset some of the other lines that may be a little bit challenged. So Mike, that's it for U.S. here in the U.S., I know you've got a better global Feel, So I'll throw it back to you.
MIKE VENABLES: Well Jim, thank you so much for your contribution on this episode of the Marketplace Insight podcast. We look to be in really good hands. We thank you and we look forward to seeing you in the next one.
JIM DUNLAP: Terrific, Mike, thanks very much.
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